Entreprises Forestières Margel Inc. v. M.N.R., docket 98-19-UI

Date: 19980911

Docket: 98-19-UI

BETWEEN:

LES ENTREPRISES FORESTIÈRES MARGEL INC.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

MARIO BOULET,

Intervener.

Reasons for Judgment

Prévost, D.J.T.C.C.

[1] This appeal was heard at St-Joseph-de-Beauce, Quebec, on August 25, 1998.

[2] It is from a decision by the Minister of National Revenue (“the Minister”) dated November 6, 1997, which reads as follows:

[TRANSLATION]

This letter concerns the appeal by Les Entreprises Forestières Margel Inc. from the notice of assessment of August 27, 1997, for $3,119.03 in respect of employment insurance and unemployment insurance premiums, including the applicable penalty and interest, for 1996.

We have decided to confirm the notice of assessment for Mario Boulet’s employment insurance and unemployment insurance premiums because his employment met the requirements for a contract of service. There was therefore an employer-employee relationship during the year at issue.

[3] Paragraphs 2, 3 and 6 of the Reply to the Notice of Appeal read as follows:

[TRANSLATION]

2. On September 15, 1997, the appellant asked the respondent to rule on the question of whether Mr. Boulet (hereinafter “the worker”) held insurable employment when working for it during the 1996 season. At the same time, the appellant contested the notice of assessment issued in respect of the worker for the same period.

3. The notice of assessment in respect of the worker, which was dated August 27, 1997, involved the following amounts:

Employment insurance: $2,761.20

Penalty:        $226.12

Interest:        $131.71

. . .

6. In making his decision, the respondent Minister of National Revenue relied on the following assumptions of fact:

(a) The appellant, which has been in operation for about 17 years, does logging work, specifically felling and delimbing trees.

(b) Since February 1994, the appellant’s voting shares have been distributed as follows:

Marcel Roy with 91.24 percent of the shares (A and F);

the worker, Marcel’s son-in-law, with 2.19 percent of the shares;

Francine Roy, the worker’s wife, with 2.19 percent of the shares; and

Benoît Roy, Marcel’s son, with 4.38 percent of the shares.

(c) The appellant operates its business in the forest for eight or nine months a year.

(d) In addition to the shareholders, the appellant hired as many as 10 other forestry workers in 1996.

(e) The worker supervised the other workers and replaced workers on the night shift when necessary; he also worked in the appellant’s garage maintaining the machinery.

(f) In 1996, the worker worked for the payer throughout the season.

(g) When working in the forest, he could work as many as 80 hours a week, and when working in the garage, he could work 20 hours a week.

(h) The worker received a fixed salary of $1,500 for two weeks of work, as did Benoît Roy (shareholder-worker for the appellant).

(i) The worker used the appellant’s equipment and machinery for his work.

(j) The appellant’s work was directly integrated into the appellant’s operations.

[4] The Reply to the Notice of Intervention is to the same effect.

[5] When the hearing began, the appellant’s president, Marcel Roy, admitted all the above subparagraphs on the appellant’s behalf. The intervener also admitted them.

Evidence of the appellant and the intervener:

[6] Marcel Roy originally said that the appellant would call no witnesses.

According to the intervener, Mario Boulet:

[7] Mr. Boulet's work was done in very special circumstances, since he worked many hours each week and did not have to abide by a fixed schedule.

[8] His salary was only $750 a week, plus four percent vacation pay.

[9] He sometimes worked 24 hours in a row replacing employees who did not come to work, and he was paid nothing more for doing so.

[10] He could be absent from work without asking for permission as long as this was not detrimental to the appellant’s operations.

[11] If an employee was absent, Mr. Boulet willingly did the employee’s work without waiting for Marcel Roy to ask him to do so.

[12] Mr. Boulet did not have vacation time scheduled in advance, and he took time off only when his duties allowed.

[13] His salary existed so that he could support his family.

[14] He received no dividends from the appellant because the appellant incurred losses during the period at issue.

[15] Even when things were going better, it was always necessary to reinvest, which meant that dividends were never declared.

[16] Since March 1997, Mr. Boulet has been working for Forage et Dynamitage de la Rive-Sud Inc. and, according to his periodic pay sheet (Exhibit A-4), his gross weekly earnings have been $1,292.60 for 60 hours of work.

[17] When he worked for the appellant, he received no orders from his father-in-law or his brother-in-law.

[18] There was therefore no contract of service.

[19] Mr. Boulet stood surety for the appellant so that it could purchase and lease machinery, which an ordinary employee would not have done. He was not really accountable to the appellant, and it was he who decided whether he had to run errands in his pickup truck or move some of his machinery parts for greater efficiency.

[20] In doing his work, he was not supervised in any way by the appellant and was free to be absent from work to try to obtain new contracts for the appellant.

[21] The other shareholders were also always trying to find new contracts.

[22] Marcel and Benoît Roy also worked for the payer.

[23] Mr. Boulet did any necessary repairs himself so that the other employees would not lose any time.

[24] Benoît Roy did the same work as him but worked mostly during the day, whereas Mr. Boulet worked mainly at night.

[25] However, they did help each other at one point when there was an excess of work.

[26] Marcel Roy worked during the day and did more or less the same work as them, although he ran a few more errands.

[27] The other shareholders also stood surety for the payer.

[28] A hypothec and pledge agreement (Exhibit A-1) signed for the payer by Marcel Roy, Benoît Roy and Mario Boulet clearly shows that a Timberjack tree feller was hypothecated to GE Capital Canada for $200,000 on February 13, 1995.

[29] A contract of leasing (Exhibit A-2) signed for the payer by the same three people also clearly shows that $297,000 in equipment was leased by the appellant from GE Capital Canada on the same date.

[30] The same three people also signed, in favour of GE Capital Canada, an agreement of solidarity and indemnity (Exhibit A-3) with the appellant as the debtor under a loan and hypothec agreement for equipment.

[31] The appellant's decisions were made by the shareholders after being discussed, usually on Sunday evenings.

[32] Mr. Boulet and Benoît Roy were more driven and sometimes had to be restrained; Marcel Roy, who had extensive experience and was also the majority shareholder, saw to this and always had the last word.

[33] Mr. Boulet still owns his shares in the appellant, and the reason he left his job was that he had a disagreement with his brother-in-law, Benoît Roy, who still works for the appellant.

[34] Marcel Roy was the one who recruited staff, but all three of them had the power to dismiss employees.

[35] Mr. Boulet did not work on a specific machine and could be absent from work, which an ordinary employee could not.

[36] When someone was away on a shift, Mr. Boulet replaced the person.

[37] His salary at the appellant was determined on the basis of his family’s needs.

[38] Benoît Roy had exactly the same salary.

[39] In his new job, Mr. Boulet works as a driller and is paid for every hour he works.

According to Marcel Roy, who then wished to be heard:

[40] The appellant did not collect employment insurance premiums from the intervener because he had shares in the business and therefore was not entitled to benefits.

[41] Mr. Roy had heard the intervener’s testimony and was generally in agreement with what he had said.

[42] Mr. Roy had read the following, inter alia, in a newspaper article (although he does not remember the name of the newspaper) dated June 1, 1988 (Exhibit A-5):

[TRANSLATION]

To be insurable, forestry workers would have to be constantly supervised by the employer, which is difficult in the forest where, most of the time, they are told where to fell trees and are then paid by the measured cord.

[43] The appellant received a notice of assessment (Exhibit I-1) in this respect from Revenue Canada. It showed the amounts set out in paragraph 3 of the Reply to the Notice of Appeal, supra.

[44] At the logging camps, the intervener took orders from the supervisor from the company that had subcontracted to the appellant.

[45] The payer’s other employees are hired on a weekly basis and paid between $650 and $800 depending on the nature of their jobs.

[46] The appellant also pays their room and board.

[47] The intervener is an employee-owner and is also related to the other shareholders.

[48] The respondent called no witnesses.

Arguments

According to Marcel Roy for the appellant:

[49] The appellant is a family business and, given the relationship and the fact that Mario Boulet owns shares in the appellant, the appeal should be allowed.

According to the intervener:

[50] The reason that unemployment insurance and employment insurance premiums were not collected was simply that the intervener was not eligible for any benefits that might result therefrom.

According to counsel for the respondent:

[51] Paragraph 3(1)(a) of the Unemployment Insurance Act (the UIA) and paragraph 5(1)(a) of the Employment Insurance Act (the EIA) define “insurable employment” as follows:

(a) employment in Canada by one or more employers, under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise . . . .

[52] It is true that the employment was initially excluded because of the non-arm’s length relationship, but the Minister was satisfied that it was reasonable to conclude that the intervener and the appellant would have entered into a substantially similar contract of employment if they had been dealing with each other at arm’s length.

[53] The Minister properly exercised the discretion conferred on him by paragraph 3(2)(c) of the UIA and subsection 5(3) of the EIA.

[54] He properly found that the employment met the requirements for a contract of service and that an employer-employee relationship therefore existed during the year at issue.

[55] The employment was therefore insurable under the above-mentioned statutory provision.

[56] An unrelated person could in the same circumstances have done the same thing as the intervener.

[57] The intervener owned only 2.19 percent of the appellant’s shares.

[58] In Rosetta Doyle v. The Attorney General of Canada (A-499-89), the Chief Justice of the Federal Court stated the following for the Court of Appeal:

We are all of the view that this application must succeed. The Deputy Judge erred in law in failing to distinguish the Applicant’s role as a shareholder from her role in performing duties for the corporation.

Accordingly the section 28 application will be allowed, the decision of the Deputy Judge rendered on September 20, 1989 will be set aside, and the matter will be referred back to the Tax Court of Canada for reconsideration on the basis that, during the period in question, the Applicant was employed in insurable employment within the meaning of the Unemployment Insurance Act.

[59] The intervener still has his shares in the appellant even though he no longer works for it; he is therefore still a shareholder.

[60] It is true that the intervener played an important role at the appellant, but any third party could have played that role.

[61] He was absent from his workplace when necessary, but this was mainly to do repairs and seek contracts.

[62] In the forest, the intervener’s work was overseen by the supervisor from the company that had subcontracted to the appellant.

[63] It was as a shareholder that he stood surety for the appellant, and the other shareholders did the same thing.

[64] Matters that had to be settled at the appellant were decided after being discussed on Sunday evenings, but Marcel Roy always had the last word since he owned the vast majority of the shares.

[65] The intervener’s role as a shareholder must be distinguished from his role as a worker.

Analysis

[66] It is clear that Marcel Roy, who owns 91.24 percent of the shares, is the appellant’s most important shareholder and that major decisions are ultimately up to him.

[67] All the assumptions of fact relied on by the Minister have been admitted by the appellant and the intervener.

[68] The Court must therefore decide whether those assumptions are sufficient in law to justify the Minister’s conclusion.

[69] While it is true that the circumstances in which the intervener worked were special in some ways, this is also true in many other cases involving contracts of service.

[70] The intervener’s schedule was determined by the work he had to do, and this is not unusual for someone who is paid by the week.

[71] He supervised other people who worked for the appellant and thus took on responsibilities, but this does not mean that his employment had to be excluded.

[72] His vacation pay was given to him each time he was paid, which is true in many other cases.

[73] His salary may have existed only so that he could support his family, but he accepted it nonetheless.

[74] Any dividends are issued to shareholders, not workers. In the case at bar, it was only his employment that the Minister found insurable.

[75] As stated in Doyle, supra, a role as a shareholder must always be distinguished from a role as a worker.

[76] It is fortunate that the intervener is earning more now, but that is not what the Court has to decide to reach a conclusion in this case.

[77] The intervener said that he did not receive orders from his father-in-law or his brother-in-law, but it is clear that he was subject to the board of directors, of which Marcel Roy was in full control.

[78] It was as a shareholder and not as a worker that he stood surety for the appellant.

[79] The two roles are so distinct that he no longer works for the appellant but still holds shares in it.

[80] Having the power to dismiss does not necessarily mean that one’s employment is uninsurable, especially where, as in this case, there is no power to hire.

[81] The intervener is paid by the hour in his new job, which was not the case when he worked for the appellant.

[82] Marcel Roy may have been misled by the newspaper article (Exhibit A-5), but that article said nothing about share ownership and did say that such matters are always dealt with on a case-by-case basis, which is quite true.

[83] As the head of the appellant, Marcel Roy could also have sought advice elsewhere but does not appear to have done so.

[84] According to him, the intervener, when working at the logging camps, had to take orders from the company that had subcontracted to the appellant, which clearly shows that he was also subject to control in the forest by the client.

[85] It is true that a relationship exists but, in exercising his discretion, the Minister decided to include the employment.

[86] It is true that an unrelated person could have done the same work as the intervener on substantially similar terms.

[87] In view of the discretion conferred on the Minister by Parliament, the Court must show deference to the decision under appeal and, as a result, cannot allow either the appeal or the intervention given that all the assumptions of fact (which were admitted) on which the Minister relied in support of his conclusion were fully sufficient for that purpose.

[88] The decision under appeal is therefore confirmed.

Signed at Laval, Quebec, this 11th day of September 1998.

“A. Prévost”

D.J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 9th day of April 1999.

Stephen Balogh, Revisor